Revenues were flat at S$533mn (y-y and q-q). Mobile revenues grew 1%, but both pay-TV and broadband was down 2-3% y-y. Adjusting for advertising revenues in 2Q08 from the Euro Cup, pay-TV revenues were flat y-y. Underlying NPAT of S$76mn was up 2% y-y, but some 3% below consensus. EBITDA of S$161mn was broadly in-line and 31.4% margin was impacted by a 510bps drop in pay-TV margins. Year-to-date, free cashflow is up 55% to S$264mn.

There is clearly an element of customers choosing to downgrade to lower pay-TV/ broadband packages given the economic slowdown, instead of switching off entirely — net adds were positive in all three segments. But the company is being cautious/ prudent in not passing on some of the higher content/traffic costs to manage churn rates. NBN impact is not transparent yet, and we remain concerned about further ARPU dilution risk.

Although jokingly, CEO Terry Clontz’s commented during the conference call that “he may retire early if StarHub doesn’t win EPL (English Premier League)” — we think this does highlight: 1) the company’s confidence in retaining these rights, and; 2) the importance of these rights to the business. Pay-TV is around 20% of total revenues and 15% of EBITDA (and not all of this is EPL related) — but the sentiment impact of losing EPL could be significant as this is a key part to their “hubbing” strategy. Mr Clontz also stated that the company understands the value of these rights and can model these with precision, suggesting that it will not unnecessarily enter price wars.

We have raised our FY09F and FY10F EPS by 1-3%. There is no change to our EBITDA forecasts (lower revenues offset by lower costs), but we have reduced our capex/sales forecasts from 14% next year to 13%. Our revised price target is S$2.35 per share.